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Monte Carlo Fashions: Subscribe with a long term view

Nirmal Bang | 02 Dec, 2014  | Follow Author | Add to my Favourites 
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Monte Carlo Fashions Ltd (MCFL) is owned by Oswal Woollen Mills Ltd(OWML)and recognized as “Super Brand “since last September 2004 derives 45.62% of sales from woollen segment and 43.3% of sales from cotton segment. The company enjoys a wide distribution network with 196 Monte Carlo Exclusive Brand Outlets in India, 2 in Dubai and 1 in Nepal. The company has also supplied products to over 1300 Multi Brand Outlets (MBO) through commissioned agents. The company operates two manufacturing facilities in Ludhiana (Punjab), one for woolen apparel products and one for cotton apparel products.

Details of the issue:

In June 2012, Samara Capital, a Mauritius-based PE firm, through its affiliate, KIL had acquired a stake in MCFL and currently holds 18.51% of the pre-offer capital of the company. With this offer for sale, the promoters will be diluting 17.5% stake while Samara Capital will be divesting 7.5% equity. There is no fresh issue of share.

Objects of the Issue

The issue consists of dilution by promoters and PE funds. The issue will (a) Enhance the visibility and brand image amongst the existing and potential customers (b) Provide liquidity to the existing shareholders.

Investment Rationale

- Reduced dependence on any particular segment by catering to diverse product portfolio.

- Capacity expansion to capitalize on increasing opportunities

- Strong brand

- Increasing distribution network

- Strong back-end with in-house design and manufacturing

- Focus on expansion of kids wear under the ‘Tweens’ range

- Increasing urbanization

We believe that the company has rightly timed its IPO in the winter season as this is the peak season for the company and Q3 reports the highest sales for the year.

Valuation and Recommendation

Between FY12-14 Monte Carlo’s revenues grew at CAGR of 16% while EBIDTA grew at a CAGR of 7%. Going forward, we expect the company to continue exhibiting high growth trend until the company reaches a reasonable mature stage of business cycle. Moreover, the high growth in the industry coupled with shift from unorganized to organized player will also fuel and support growth for company. As the apparel industry size is expected to grow at a CAGR of 9% by 2023, we expect Monte Carlo to post numbers well ahead of industry growth.

At the given price band of Rs 630-Rs 645, Monte Carlo will trade at PE of 24.68x – 25.26x on its post issue diluted FY14 EPS of Rs25.5/sh and EV/EBIDTA of 14.2-14.6x. We recommend subscribing the issue for listing gain as well as long term view.

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About Nirmal Bang

Founded in 1986 by Nirmal Bang, the Nirmal Bang is recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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